Market Summary | March 2020
MARKET OVERVIEW
In March, the coronavirus outbreak stole all the headlines, giving us almost hourly updates as it transformed our lives. We saw ‘unprecedented’ use of the word unprecedented as global economies were forced into hibernation. Inevitably, there was a serious impact on world stock markets, which have suffered their worst quarter since 1987.
Governments around the world have implemented extreme measures including social distancing, partial shutdowns and full lockdowns, in order to prevent the spread of the coronavirus. With consumer-facing sectors essentially shut down and global supply chains in disarray, economic activity is rapidly falling, and a recession has most likely already begun.
UNITED STATES
While the extent of the fall was not surprising, the speed at which the market is falling certainly was. The tightening of liquidity conditions across a range of markets was symptomatic of severe stresses in the financial system, raising the risk of a more disorderly and precipitous decline in economic activity
The US has put together a US $2 trillion fiscal stimulus package in response to the coronavirus, amounting to around 10% of GDP. This is a similar playbook to that rolled out following the GFC, however this time around, it was actioned much earlier.
Non-farm payrolls showed a reduction of 701,000 jobs in March, while initial jobless claims made an extraordinary leap to 6.6 million according to the 2 April release, up from 281,000 in the 19 March release.
Online E-commerce company Amazon was a major beneficiary as consumers were forced to shop online, the company finishing March in the green, significantly ahead of the broader marker.
The S&P 500 Index (USD) returned -12.51%
The Dow Jones (USD) returned -13.74%
ASIA
The situation in China appears to be stabilising, with the rate of infection slowing over recent weeks, while the rest of the world takes action to prevent the spread. Approximately two months since the region was locked down, China has begun easing restrictions in Hubei, with some travel permitted and some industries restarting. This followed a visit from President Xi Jinping to the region as a show of confidence in his government’s efforts.
The broader impact on the Chinese economy is most clearly seen from the PMI numbers, which gauge manufacturing activity. February’s result saw a drop from 50.0 to 35.7, indicating a very significant contraction. After recording GDP growth of 6.1% in 2019, the World Bank now estimates that growth will fall to 2.3% in 2020.
The Hong Kong Hang Seng PR Index (HKD) returned -9.67%
The Nikkei 225 PR Index (JPY) returned -10.53%
The Shanghai Shenzhen 300 PR Index (RMB) returned -6.44%
EUROPE
The impact on Europe of Covid-19, could be severe and long lasting. The blow to Italy’s economy could be catastrophic, especially with several Italian banks long having been widely seen as vulnerable pre-crisis. If the outbreak is prolonged then the fragile economies of Spain, Greece and Portugal are only going to compound the problem.
At a national level, Germany announced a fiscal stimulus worth €756 billion, or 10% of annual GDP. The UK announced a £350 billion package of loans and grants to help British businesses pay the bills, while those businesses in sectors such as retail and hospitality will receive a year-long holiday from paying business rates.
The UK’s FTSE 100 PR Index (GBP) returned -13.81%
The German Dax (EUR) returned -16.44%
AUSTRALIA
The Australian government had to quickly come to terms with the severity of the health crisis and the inevitability of an economic recession. Since early March, a series of economic measures have been announced to mitigate the impact on the local economy and people’s lives. The usual May federal budget was delayed to October 2020, while the uncertainty makes formulating reliable economic and fiscal estimates an impossible task.
In response to the virus, the RBA cut rates to 0.25% in March and left rates on hold at its April meeting.
Australian shares faced a very tough March as the ASX 200 fell 20.65% as measures to combat the spread of the coronavirus, along with the economic dislocation globally, hit businesses hard. The only good news was sign of a relief rally late in the month as markets began pricing in stimulus measures announced by the government, but no sector has made it through this period unscathed.
Winners amid the chaos include some consumer staples names including wholesale distributor Metcash (+27.5%) and Coles Group (+6.7%), which have seen a boost in sales due to consumers stocking up as they prepare for quarantine.
MARKET RETURNS (LAST 12 MONTHS)
Recent performance has pushed the return of International equities ahead of Australian equities. Performance from international equities remains in positive territory (mainly due to currency gains), whilst local equities are negative. Returns from Cash remain somewhat suppressed.
The above graph summarises the performance of the major financial markets and gives you an indication of how these markets performed over the last 12 months. The graph does not reflect your actual portfolio performance.